Total non-life insurance linked securities (ILS) capital reached a record $70 billion at year-end 2015 – topping the previous record of $65 billion at year-end 2014, according to the latest ILS market update from Willis Capital Markets & Advisory, the investment banking business of Willis Towers Watson.
As re/insurer interest and investor confidence continued to grow, 2015 saw the continuation of the gradual move towards a broader array of risks transferred, with increasing interest beyond natural catastrophe perils into life, accident & health and casualty risks, the report confirmed.
At the same time, ILS products such as sidecars, industry loss warranties and collateralized reinsurance showed considerable growth during the year, the WCMA report added.
Non-life catastrophe bond issuance, on the other hand, which has seen continued year-on-year growth since 2011, was down to $6.2 billion for the full year, compared to the record $8 billion level issued during 2014.
This decline is mainly due to one-off factors such as multi-year deal inception dates, the report said, noting, however, that the drop does not signify reduced appetite for such transactions. In fact, the number of deals in 2015 increased year-on-year.
Bill Dubinsky, head of ILS at WCMA, said: “Looking at the headline catastrophe bond figure, a decline in issuance appears to be the case. However, this general picture fails to account for the huge $1.5 billion transaction completed in 2014 – Citizens’ Everglades Re – which skews any prior year comparison.
“The number of deals in 2015, and transactions such as Azzurro Re, demonstrate that ILS is becoming a core component of many re/insurers’ risk transfer strategies and investor appetite remains strong. We therefore expect continued growth in ILS assets under management in 2016, including growth in catastrophe bonds.”
On the broadening of deals transacted, Dubinsky said: “Further expansion into new products and perils will require continued innovation and investment by all market participants. Investors are showing pricing discipline in the current soft market, yet there remains clear appetite to deploy capital across a broader array of risks and products as investors continue to become more comfortable with this maturing asset class, as long as investment standards are met.
“Overall, despite the soft market, the ILS market is healthy and of keen interest to institutional investors, insurers and reinsurers, and increasingly to corporates and governments as well,” he said.
Source: Willis Capital Markets & Advisory